Alongside good performance, risk management and other requirements, asset managers must show they have a good culture and diverse employees — or be working toward achieving those things — to win mandates, allocators said during a panel discussion Tuesday at Pensions & Investments' Future of Work —The Next Generation conference.
The panel was a reminder that while some investors have rebuffed using environmental, social and governance, or ESG, factors to build portfolios, others are embracing them and demanding that asset managers conform to higher ESG standards.
Several state treasury funds controlled by Republicans have recently castigated ESG investing and taken action, mainly in the form of divesting from BlackRock funds. They claim the world's largest asset manager's promotion of ESG investing is hampering returns and has other ill effects.
But good workplace culture and diverse employees are not just about societal good, those things improve teams and companies, and ultimately investment performance, said Hannah Grove, a member of the advisory board of Irrational Capital and a non-executive director at abrdn who participated in a Future of Work conference panel focused on how a workforce culture influences performance and relationships with asset allocators.
Diversity is definitely a factor in choosing an asset manager for the Office of New York City Comptroller Brad Lander, the fiduciary for five pension plans in the $242.4 billion New York City Retirement Systems.
"Workplace and DEI is absolutely essential to our due diligence process," said Jimmy Yan, director of ESG at the comptroller's office.
Fully understanding the culture and how diverse an asset manager is can be difficult, however. The data shared by managers often requires follow-up questions, said panelist Gila Cohen, chairwoman of the independent investment advisory board of MUFG.
"It's not apples to apples," said Ms. Cohen, who also is global head of institutional partnerships at Monroe Capital, a $14 billion private credit manager based in Chicago.
Ms. Cohen also said that asset managers cannot relax their hiring and recruitment standards to achieve a certain level of diversity. Allocators will ask managers how they were able to become more diverse, she said.
The New York City Comptroller's Office, Mr. Yan said, doesn't just ask for a breakdown of a manager's diversity, it also asks about what positions diverse employees hold and the percentage of company compensation they receive. It's one way to measure their "size of influence" and how valuable those workers are to an organization, he said.
Still, panelists said there are many ways to create a diverse group beyond hiring employees who aren't white. Workers from different socioeconomic backgrounds — who grow up in different environments and often attend different schools — also bring their own unique perspectives.
One attendee recounted to the panel members that her company strained to find a diverse portfolio manager and ultimately hired a prototypical "50-year-old white guy." How, she asked, would those allocators treat her firm?
Panelists empathized with her and said they recognized that creating a good culture, or making a firm more diverse, takes time. And a middle-aged white man can have diversity merits that go beyond gender and ethnicity.
A manager putting in genuine effort to accomplish those things would certainly be considered — as long as they are good investors.